Morrisons has revealed its profits dived 50% this summer as it battled “unprecedented inflationary pressures” at its in-house food processing arm.
The supermarket, which lost its spot as the UK’s fourth largest grocer this month when it was overtaken by Aldi, said underlying profits had dived to £177m in the 13 weeks to 31 July from £356m in the same period a year earlier.
Sales for the period rose by 4.5% to almost £4.8bn but were down by just over 3% once new store openings were excluded.
The company, which was bought by the US private equity firm Clayton Dubilier & Rice in a deal worth about £7bn last year, blamed “temporary and transitional factors” as well as inflation for the poor trading, which it said would not continue into the autumn.
Those factors include a switch in the timing of booking income from payments from suppliers related to promotions, which contributed to the fall in profits, and the removal of discounts for NHS workers and changes to the loyalty scheme, both of which meant lower sales.
Morrisons, which has asked senior staff to invest thousands of pounds of their own money in the business in recent months, added that the business had “experienced unprecedented inflationary pressures in our own food manufacturing operations. As a food maker, we feel the effects of inflation earlier than other retailers but conversely are able to recover more quickly when inflation falls.”
Retailers are struggling with soaring food prices as the war in Ukraine combines with the Covid crisis and the effects of the climate emergency to drive up the cost of energy and food production. UK retailers and producers have also been affected by higher import costs due to Brexit and the drought conditions that have hit production of some fresh produce, although the hot weather was good for many soft fruits.
Consumers faced 5.7% shop price inflation in this month, up from 5.1% in August and the highest monthly rate since the British Retail Consortium-NielsenIQ index began in 2005.
However, these price rises do not fully reflect the increase in costs for retailers and their suppliers, who are absorbing some inflation amid heavy competition for increasingly cautious shoppers.
Shoppers have been drifting away from traditional supermarkets – led by Tesco, Sainsbury’s and Asda – to the discounters Aldi and Lidl during the cost of living crisis.
However, these retailers are also under pressure from rising costs. Aldi, which has gained 1.5 million customers in the past three months, said on Monday annual profits had slumped 86% last year. It blamed the need for higher wages and the cost of doing business during the pandemic as well as price cuts.